By Arra B. Francia, Reporter
LOCAL EQUITIES may trade sideways in the last three trading days of 2018 amid a shortened week and as investors take a pause for the holiday break.
The bellwether Philippine Stock Exchange index (PSEi) dropped 1.11% or 83.70 points to close at 7,479.71 last Friday, weighed down by profit-taking after the US Federal Reserve hiked rates by another 25 basis points last week.
The main index fell by 0.6% or 44 points on a weekly basis, with losses mostly in the mining and oil counter (3.11%) and the financials sub-index (1.64%).
Average daily turnover went down by 24.83% to P6.68 billion last week compared to P8.88 billion in the previous week. Market breadth also favored losers, albeit at a small difference of 97 to 93.
“With a long weekend coming up, expect the PSEi to respond to the moves of the US market when our market opens once again on Wednesday,” Papa Securities Corp. Sales Associate Gabriel Jose F. Perez said in an e-mail.
“Barring any jarring event abroad, we might see a resumption of the light trading [this] week especially with the shortened trading schedule and another long weekend…”
Online brokerage said the US central bank’s decision to raise benchmark rates could result in more volatility.
“The Fed’s surprise move to raise benchmark interest rates by another 25 basis points connotes increased funds flow volatility. Appetite towards fixed income is back, as comparative instruments scale up on expectations of increased fiscal and corporate borrowings for 2019,” said in a weekly market note.
Despite more appetite for bonds, the online brokerage noted that equity remains to be the cheapest funding option for companies.
“So long as business models are scaled to meet investors’ expected dividend yield, capital appreciation potential is present in equities to counter future inflation risks.”
It also added that slower economic growth should not be equated to a recession, as is the fear about the US economy of some analysts due to signs in the yield curve, which has historically shown signals of when a recession will come since the 1960s.
“While trade issue resolutions linger and other geopolitical concerns, slower economic growth should not be equated to recession. Similarly, return on equity may slow for enterprises that are on capital-intensive mode. The aspect to consider, is whether listed companies’ initiatives would bring about revenue model expansion that will support recurring cash flows.”
In the meantime, noted that volume will likely be light this week due to the shortened trading period ahead of 2018’s close.
The online brokerage placed the PSEi’s immediate support from 7,350 to 7,400, with resistance from 7,550 to 7,600.